Seniors seeking reverse mortgage information will quickly notice that these loans are highly flexible. Not only do seniors get to choose from different loan products and interest rates, but they also get to choose a payment option. Currently, Home Equity Conversion Mortgages (HECMs) offer three primary payout options. Seniors may choose to receive their loan proceeds in one upfront sum, in monthly installments or as a line of credit.
Seniors who find it difficult to choose one option can select a combination of options. For instance, a borrower might choose to open a line of credit and receive scheduled monthly payments throughout the life of the loan. This specific option is known as "modified tenure."
Reverse Mortgage Information Regarding Seniors' Payment Options
Current reverse mortgage information suggests that around 70% of seniors choose fixed rate reverse mortgages that provide proceeds in one upfront sum. There are a few different reasons for this. Many borrowers feel more secure knowing that their interest rate will never increase. In many cases, seniors are also interested in receiving the largest possible payout upfront, primarily because many borrowers have existing liens to repay. Since the loan must be in the first lien position, seniors must repay their existing mortgage balance with the proceeds of their loan. This forces many borrowers to opt for the lump sum payment option.
Seniors who have small remaining mortgage balances sometimes also choose the credit line option. Reverse mortgage credit lines carry a growth feature that increase borrowers' available credit as their equity grows. With this option, seniors may withdraw funds at will and are only charged interest on the amount borrowed.
While researching reverse mortgage information, seniors will also find that there are two different monthly payment options: term and tenure. Seniors who choose term payments will receive a set monthly payment for a specific term. Whereas, with tenure, borrowers receive set monthly payments for as long as they remain in their home.
What Reverse Mortgage Information to Consider During the Loan Process
Seniors interested in reverse mortgage information must understand that their payment option will not only affect the way they receive their proceeds; it will also affect how much they receive from their equity. Because credit lines offer a growth feature, the credit limit will increase with time, thus giving seniors continued access to their growing equity.
Seniors who choose tenure payments sometimes also receive more over the life of their loan. Tenure payments will continue for as long as a borrower inhabits the property. If a borrower lives for 35 years after getting a loan, he or she will continue to receive monthly payments over the course of those 35 years. Over time, the accumulated value of those payments can far exceed what the borrower would have received if he or she had originally accepted a lump sum.
Still, monthly payments do not make sense for every borrower. Borrowers who need to repay an existing forward mortgage or have another large expense may need a large upfront payment. The important thing is that, while pursuing a loan, seniors gather all the reverse mortgage information they can and select the payment option that best meets their needs.